D&O liability insurance policy protects the directors and officers against personal liabilities and is an excellent risk mitigation program for corporates.
Any company is legally permitted to cover the personal liability costs resulting from activities performed on behalf of the company. But this agreement may not apply to all situations that can result in a personal liability of a director. The company cannot indemnity ( pay for the losses) suffered by the director if the company itself becomes insolvent and does not have enough funds/capital to pay for the losses. Also in some cases, the financial burden of the liability is the sole responsibility of the director or officer particularly in view of provisions like Section 201 of The Indian Companies Act 1956.
The primary purpose of Directors & Officers Liability insurance is to fill in these gaps, protecting the personal assets of the individual director or officer.
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